Nearly one-third of homeowners who refinanced their mortgages in
recent months chose to accelerate the date when their loan would be
paid off, according to new figures from
Of all homeowners who refinanced Freddie Mac-backed mortgages in
the third quarter of the year, 29 percent chose a new mortgage with
a shorter loan term than their current one, such as replacing a
mortgage with 23 years left on it with a 15- or 20-year fixed-rate
The vast majority, 68 percent, chose to stay with their same
loan term as before, while 3 percent chose to stretch out their
Historically low mortgage rates, along with a substantial
difference in interest rates between 15- and 30-year fixed-rate
mortgages have made shorter-term mortgages an increasingly popular
option for refinancing.
"Compared to a 30-year fixed-rate mortgage, the interest rate on
a 15-year fixed was about 0.7 percentage points lower during the
third quarter," said Frank Nothaft, Freddie Mac chief economist."
For borrowers motivated to refinance by low fixed-rates, they could
obtain even lower rates by shortening their term. Further, a
shorter-term, fully amortizing loan reduces the loan balance faster
and builds home equity sooner."
HARP Refinancers Opt for Longer Terms
Homeowners who refinanced through the government's Home
Affordable Refinance Program (HARP) were slightly more likely to
stick with a long-term mortgage rather than choosing to shorten
their mortgage term. Just 25 percent of borrowers who refinanced
through HARP chose to shorten their loan term, compared to 31
percent of non-HARP refinances.
Virtually all borrowers who refinanced adjustable rate mortgages
(ARMs) through HARP during the third quarter of the year chose to
refinance into fixed-rate mortgages, with 95 percent choosing that
option. By contrast, about one-half of homeowners who refinanced
ARMs outside of HARP during that time chose to stay with an
About 83 percent of those refinancing primary mortgages during
the third quarter of 2012 either reduced or maintained their
current mortgage balance, leaving only a small percentage of
"cash-out" refinances where homeowners used a refinance to borrow
against their home equity. Borrowers reduced their balance owed in
29 percent of all refinances in the third quarter.
The figures are based on Freddie Mac's own figures for
refinanced mortgages it guaranteed during the third quarter of
First published on MortgageLoan.com at: